Insolvency and directors' duties in Argentina: overview

A Q&A guide to insolvency and directors' duties in Argentina.

The Q&A provides an overview of insolvency from the perspective of companies that are operating within a domestic and/or international group of companies, and considers the various complexities that this can introduce into insolvency procedures. It also has a significant concentration on duties, liabilities, insurance, litigation, and subsequent restrictions imposed on directors of an insolvent company.

To compare answers across multiple jurisdictions, visit the Insolvency and Directors’ Duties Country Q&A tool.

This Q&A is part of the Insolvency and Directors’ Duties Global Guide. For a full list of contents, please visit www.practicallaw.com/internationalinsolvency-guide.

Contents

Corporate insolvency proceedings

1. What are the main out-of-court and court-sanctioned insolvency proceedings involving a liquidation of the company's assets?

Insolvency proceedings are governed by the Reorganisations and Bankruptcy Law No. 24,522, as amended (Bankruptcy Law).

The only liquidation proceeding under the Bankruptcy Law is a full court-sanctioned bankruptcy proceeding (quiebra) (similar to Chapter 7 of the US Bankruptcy Code (11 USC Chapter 7 - Liquidation)). The bankruptcy proceedings can be commenced by petition of the debtor (voluntary bankruptcy) or by petition of any creditor (involuntary bankruptcy).

The bankruptcy proceedings are performed under the control and supervision of a judge by a receiver appointed by the court. The aim of bankruptcy proceedings is to liquidate the assets of the debtor and distribute the proceeds among the creditors whose claims were admitted according to their preference in payment, as determined by the court in accordance with the Bankruptcy Law.

Bankruptcy adjudication has several effects, including the following:

  • All the debtor's assets (except for non-monetary rights and non-attachable assets, among others) pass to the estate and are managed by the receiver.

  • Creditors must submit proof of claims.

  • All claims become due and payable.

  • Accrual of interest on unsecured claims is suspended.

  • All monetary claims against the debtor, including secured claims (except for seizure proceedings, family law claims, ordinary proceedings, labour claims and claims in which the debtor is a joint defendant) are consolidated at the bankruptcy court.

  • All claims denominated in foreign currency are mandatorily converted into local currency.

 
2. Are there statutory proceedings allowing for a rescue/restructuring of the debtor company's operations and debts?

There are two types of rescue/restructuring proceedings under the Reorganisations and Bankruptcy Law No. 24,522, as amended (Bankruptcy Law):

  • Out-of-court restructuring agreement (acuerdo preventivo extrajudicial).

  • Reorganisation proceedings (concurso preventivo de acreedores).

Out-of-court restructuring agreement (acuerdo preventivo extrajudicial)

An out-of-court restructuring agreement is a private agreement (similar to US pre-package agreements) entered into with all unsecured creditors. The agreement is binding among the parties unless otherwise provided.

An out-of-court restructuring agreement entered into with a required majority of unsecured creditors can be filed for endorsement by a competent court, to make it binding on all non-party unsecured creditors. To this effect, the agreement must be executed by unsecured creditors representing both (requisite majority):

  • More than 50% in number of all unsecured creditors within each class.

  • At least 66.66% of the aggregate amount of unsecured credits within each class.

The consent of all creditors holding securities issued in series must be granted at a noteholders' meeting or in any other manner as provided in the documents governing those securities, at the satisfaction of the court. For calculating the requisite majority:

  • The votes of all individual noteholders within each series supporting the plan are calculated as given by one person and the votes of all individual noteholders within each series opposing the plan are calculated as given by one person.

  • The aggregate principal amount of notes held by the noteholders that consent to, or oppose, the plan are added to that of the other unsecured creditors also supporting, or opposing the plan. However, under broadly accepted case law, the principal amount of the notes held by the noteholders not attending the noteholders' meeting or abstaining from voting are not taken into account.

An out-of-court reorganisation agreement has the following main features:

  • There is no receiver or judicial control of the restructuring process, except for the verification of the required majority and court endorsement.

  • There is no submission of proofs of claims.

  • There are no restrictions on the debtor's management and disposition powers.

  • There is no suspension of interest accrual on unsecured claims.

Additionally, all pre-filing unsecured monetary claims are stayed on publication of notices of the filing of the agreement for endorsement.

Court-sanctioned reorganisation proceedings (concurso preventivo de acreedores)

The reorganisation proceeding (concurso) is a court-sanctioned reorganisation similar to Chapter 11 reorganisations under Chapter 11 of the US Bankruptcy Code (11 USC Title 11 - Bankruptcy), which is controlled by the court and can only be commenced on petition of the debtor (voluntary reorganisation).

A receiver appointed by the court supervises the process and the debtor's assets and business during the proceedings, and receives submissions of proof of claims. The court also appoints a control committee, which includes the three largest unsecured creditors and a representative of the debtor's employees.

When the reorganisation proceeding starts, it, among other things:

  • Accelerates the debtor's financial obligations.

  • Suspends accrual of interest on unsecured pre-petition claims.

  • Stays pre-petition unsecured monetary claims.

  • Requires the creditors to submit proof of claims.

  • Conserves the debtor's possession and administration of its assets in the ordinary course of business, subject to certain restrictions.

The debtor must file a creditors' classification proposal for the court's approval (which must include at least three mandatory categories of creditors: unsecured, labour and secured). The debtor then has an exclusivity period of 90 business days (that can be extended once for another 30 business days) within which it must formulate a reorganisation plan for each category of creditor and obtain consent to the plan from the requisite majority of creditors (see above, Out-of-court restructuring agreement (acuerdo preventivo extrajudicial)).

If at the end of the exclusivity period the debtor does not obtain consent to the plan from the requisite majority of creditors, the court can exercise its cram-down power to impose the plan over the objections of some classes of unsecured creditors and, therefore, confirm the plan if all of the following applies:

  • The plan was approved by both:

    • the requisite majority of creditors at least in one of the impaired classes of unsecured creditors; and

    • unsecured creditors representing at least three quarters of the aggregate principal amount of the impaired unsecured credits.

  • The plan does not discriminate the opposing classes in the following ways:

    • by banning the creditors of these classes from choosing among the available alternative restructuring options, if any; or

    • where the consideration received by the opposing classes is of inferior value to that received by the accepting classes.

  • Payment received under the plan is not less than the dividend the opposing creditors would receive in the liquidation of the debtor's assets and final distribution.

If the court does not exercise its cram-down power, it can open a five-day period for the registration of the creditors, workers' co-operatives or other third parties interested in acquiring the debtor's equity and formulating alternative competing reorganisation plans. During this period, the debtor can also file a new competing plan. The alternative competing plans must be approved by the requisite majority of creditors (see above, Out-of-court restructuring agreement (acuerdo preventivo extrajudicial)). The first registered person providing evidence to the court that they have obtained approval by the requisite majority can purchase the debtor's equity. If there is no interested person registered or no plan is approved, the court declares the debtor bankrupt.

Even after bankruptcy adjudication, a debtor can reach an agreement with all its creditors to end bankruptcy and close the proceedings. The debtor must only file evidence of the consent of each creditor to close the bankruptcy proceedings, but can for these purposes reach different, separate and individual settlement agreements with each of them. The consent of any creditors that cannot be found or that do not grant their consent can be deemed granted if the debtor deposits the full outstanding principal amount owed to these creditors, plus accrued and unpaid interest, at the order of the court to the benefit of those creditors.

 
3. What are the general requirements for commencing insolvency proceedings?

Out-of-court restructuring agreement

To file a petition for endorsement of an out-of-court reorganisation agreement, the debtor need not be in a situation of "payments cessation" (that is, the debtor is unable to regularly meet its current liabilities). It is sufficient that the debtor is in a situation of general economic or financial difficulties.

Court-sanctioned reorganisation proceedings

Court-sanctioned reorganisation proceedings can only be commenced on petition of the debtor through either:

  • The filing of a petition for reorganisation at any time before bankruptcy adjudication, provided that it is in payments cessation and at least one year has elapsed since a declaration of performance of any prior reorganisation plan filed by the debtor.

  • The filing of a petition for the conversion of a liquidation proceeding into a reorganisation proceeding after bankruptcy adjudication.

Bankruptcy

A bankruptcy petition can be commenced on the petition of the debtor (voluntary liquidation) or on the petition of any creditor (involuntary liquidation). To commence a voluntary liquidation, the debtor must provide proof of its payments cessation. To commence an involuntary liquidation, the creditor must show summary evidence of its claim and the signs of payments cessation.

 

Insolvency of corporate groups

4. Are there joint insolvency proceedings available that can apply to a whole group of companies? Do all members of a corporate group have to proceed under the same type of insolvency proceeding?

All of the debtor's group members involving a permanent economic group can file a joint petition for reorganisation. To file a petition, it is sufficient that a single member is in payments cessation and that the group members may be affected by the insolvency of that single member. Each group member's proceeding is not combined or consolidated, and the following applies:

  • All proceedings are heard by a single court and controlled by a single receiver.

  • Creditors can challenge the claims submitted in any of the group members' proceedings.

  • All group members can formulate a single reorganisation plan.

  • Any group members or their assignees holding credits within the two years immediately preceding the filing date do not have voting rights.

The debtor's bankruptcy causes the bankruptcy of its unlimited liability partners. In addition, under exceptional circumstances, a debtor's bankruptcy adjudication can be extended to, among others, any controlling shareholder of the debtor who unlawfully diverted the debtor's corporate interest. Each party's bankruptcy proceeding is heard by a single court. The court orders that the estates of the debtor and any controlling shareholder be treated as a single estate only to the extent that the assets and liabilities of the debtor and its controlling shareholder are commingled. In all other cases, each of the debtor's and any other person's estate are treated separately.

The general rule is that the venue of any insolvency proceeding of a legal entity is the court of the jurisdiction where the entity has its legal domicile.

In a group's reorganisation, the venue is the court of the jurisdiction of the group's member with the largest amount of assets according to its last financial statements.

In a bankruptcy extension to other third parties (see above), the venue of the extended bankruptcy proceedings is the court hearing the debtor's bankruptcy.

The members of a corporate family that opt for a restructuring can separately choose between filing for a reorganisation proceeding or executing an out-of-court reorganisation agreement (see Question 2). The decision depends on the financial situation and strategy of each member.

However, any member of the corporate family that is adjudicated bankrupt will only be able to file a petition for the conversion of the bankruptcy adjudication into a reorganisation proceeding. Different members of the corporate family may therefore be subject to an out-of-court restructuring agreement, a reorganisation proceeding and a bankruptcy proceeding.

 
5. Can the same insolvency office holder(s) administer the assets and the liabilities of the entire corporate group? Is a court hearing required to determine whether administration by the same individual(s) is appropriate and, if yes, does notice have to be given to creditors?

In joint reorganisation proceedings, a single receiver supervises the process and the joint petition group members' assets and business.

A debtor's bankruptcy proceeding and any other parties' bankruptcy proceedings to which the debtor's bankruptcy adjudication was extended are heard by the same court under the supervision and control of the same receiver. This is also the case where the debtor's and the third party's assets and liabilities are not commingled and the court does not order the creation of a single estate.

However, depending on the size of the restructuring and the amount of the indebtedness, the court can appoint more than one receiver, distributing the tasks to be performed by each of them and determining the manner in which they will co-ordinate their duties.

A court hearing is required to appoint the receiver and determine whether administration will require more than one receiver.

Secured and unsecured creditors or other parties with an interest in the proceedings can do any of the following:

  • Object with cause to the appointment of the receiver(s).

  • Be heard at the hearing appointing the receiver(s).

  • File an objection with cause to the receiver(s) appointed after the hearing.

The hearing is fixed by the court on resolving the commencement of the reorganisation proceedings or the liquidation case. Notice of the hearing is not given through publications or any other means, and creditors can only obtain notice of the hearing date through reviewing the court resolution.

 
6. If the law does not permit a single insolvency office holder, are there provisions allowing different office holders to co-ordinate with each other so that the value of the group's assets can be maximised?

There is no provision in the Reorganisations and Bankruptcy Law No. 24,522, as amended regarding different receivers. The court usually decides the number of receivers to be appointed depending on the size of the restructuring and the amount of indebtedness. The court also decides the tasks to be performed by each receiver and the manner in which they will co-ordinate their work.

 
7. Can professional advisers work for the entire corporate group?

Other professionals can work for the entire corporate family. All members of the corporate family must have the same legal representation in the reorganisation proceedings.

In general (mainly where there is a single controlling shareholder), all members of the corporate family have the same interest (the restructuring of the insolvent corporate family members). In fact, in many restructurings, the reorganisation is conditional on the controlling shareholders providing financial assistance (that is, loans or financial facilities), additional contributions (that is, contributions of additional equity or capitalisation of debt) or other commitments (that is, guarantee, equity delivery or waiver of pre-emptive rights).

However, under certain circumstances, there will be a conflict of interest where either:

  • The controlling shareholder has taken any actions to the detriment of the debtor (that is, had an active role in the debtor's bankruptcy, had conflicting interests, caused a diversion of the debtor's assets for its own benefit, diverted the debtor's corporate interest for the controlling shareholder's or the corporate group's benefit).

  • The controlling stake is not concentrated in a single shareholder.

 
8. Are the rules regarding members of a corporate group transferring assets to one another different when one or more members are insolvent?

Transactions among the members of the corporate family are subject to general restrictions and limitations (see Question 22).

The estate is administered by the receiver following bankruptcy adjudication.

 
9. How are claims of one member of a corporate group against other members of the group treated in a formal insolvency processes for those members?

Claims of one member of a corporate family against other members of the corporate family are valid and enforceable.

Group members' claims against another group member (except for claims on equity, which are subordinated to all other claims) are on an equal footing with those of third parties. However, any claims of the debtor's controlling shareholders will be excluded from the calculation of the majorities for approving a reorganisation plan or endorsing an out-of-court reorganisation agreement.

Substantive consolidation

10. Is pooling of assets and liabilities of some or all members of a corporate group allowed, so that a creditor of one member becomes, in essence, a creditor of all members?

In reorganisation proceedings, there is no pooling of assets and liabilities. However, all or some members of the debtor's group involving a permanent economic group can file a joint petition for reorganisation (see Question 4).

However, in bankruptcy proceedings, pooling is allowed for a bankruptcy extension to the debtor's controlling shareholder. Pooling requires the assets and liabilities of the debtor and the controlling shareholder to be commingled. The court will order that the estates of the debtor and the controlling shareholder be treated as a single estate.

 
11. What proceedings are required for the court to order the pooling of assets and liabilities?

In bankruptcy proceedings, the creation of a single estate is ordered by the court when either:

  • Resolving the extension of the bankruptcy based on the commingling of the debtor's and controlling shareholder's assets and liabilities.

  • On motion of the receiver, the commingling is shown after the extension of bankruptcy was resolved.

 
12. Is the partial pooling of assets and liabilities allowed? What conditions apply?

Partial pooling of assets and liabilities is not permitted (see Question 10).

 
13. If the pooling of assets and liabilities is permitted, are there any protections for certain types of creditors?

In a pooling, all creditors keep all the rights, privileges and preferences they originally had against the debtor's estate. However, a claim against more than one of the group's members is recognised only up to the highest amount admitted in the proof of claims submission.

Secured creditors

14. How are secured creditors treated in relation to a group of companies?

A creditor with a security interest in the assets of one member of the corporate family enjoys preference in the payment of the principal and interest under the secured claim. Payment is up to the amount of the proceeds from the enforcement of the collateral (after deducting court costs and expenses).

If there is still an outstanding balance of the secured claim unpaid after the full amount of the collateral's enforcement proceeds have been paid, the remaining outstanding balance will be paid along with all other unsecured credits of the debtor and the guarantor on the debtor's or guarantor's final distribution.

If a creditor has a security interest in the assets of one member of the family and a guarantee from another member of the family, both claims are valid in the bankruptcy or insolvency proceedings of each of the family members. The endorsement of the reorganisation plan of the original debtor does not extinguish the creditors' rights under third parties' guarantees. Therefore, the creditor's rights under these guarantees must be restructured under the guarantor's own reorganisation proceedings. In the event of bankruptcy adjudication of both the debtor and the guarantor, the creditor will have the right to collect the full amount of its credit from both or either proceedings.

 

Insolvency proceedings for international corporate groups

15. What extra considerations are necessary if one or more members of the corporate group is incorporated under or governed by the laws of another jurisdiction?

Argentina has adopted the principle of territoriality or plurality and does not recognise foreign insolvency proceedings. A separate insolvency proceeding must be commenced in Argentina in connection with the foreign debtor's assets in Argentina.

See also Question 16.

 
16. If insolvency/restructuring proceedings are started for corporate group members in different countries, do international treaties or EU legislation apply?

Argentina has not yet adopted the UNCITRAL Model Law on Cross-Border Insolvency 1997.

The sources of law in cross-border insolvency cases are the:

  • Reorganisations and Bankruptcy Law No. 24,522, as amended (Bankruptcy Law).

  • Montevideo Convention on International Procedural Law 1889 (between Argentina, Bolivia, Brazil, Colombia, Chile, Paraguay, Peru and Uruguay).

  • Montevideo Convention on International Procedural Law and Insolvency 1940 (between Argentina, Uruguay and Paraguay) (jointly, the Montevideo Conventions).

Argentina does not recognise foreign insolvency proceedings against creditors holding claims payable in Argentina in connection with any rights of those creditors on the foreign debtors' assets located in Argentina. Additionally, annulments of any agreements executed by those creditors with the foreign debtor are not recognised (Bankruptcy Law).

Commencing an insolvency proceeding in a foreign jurisdiction is grounds for the filing of a petition for an insolvency proceeding of the foreign debtor in Argentina. Commencing a liquidation case in Argentina requires the prior filing of a petition for the recognition of the liquidation declaration issued by the foreign court, under exequatur proceedings.

In addition, the Bankruptcy Law sets out three principles in cross-border insolvencies:

  • Preference for creditors participating in the Argentine liquidation process. Creditors participating in the foreign liquidation process will only have the right to the balance of the debtor's remaining assets after all the claims of the creditors participating in the Argentine liquidation process are fully satisfied. This balance includes any remaining monies after the Argentine liquidation process is concluded by full payment of the principal amount and interest on all claims submitted under the Argentine liquidation process, and after full payment of all legal fees and court costs and expenses relating to the liquidation process.

  • Reciprocity. Participation in an Argentine liquidation case of creditors holding claims payable outside of Argentina, and not participating in a foreign liquidation process, is conditioned on the filing of evidence. The evidence must show that, reciprocally, creditors holding claims payable in Argentina can participate in a liquidation process commenced in the foreign jurisdiction where those claims are payable under conditions equal to those of domestic creditors. However, there is an exception for creditors holding claims secured by liens on property (that is, mortgages (hipotecas) on real estate property or liens (prendas) on movable assets). The condition for any creditor to be subject to the reciprocity requirement is based on the place of payment of the claim (outside of Argentina) and not on the nationality or domicile of the creditor.

  • Dividend parity. Payment received by unsecured creditors in a foreign jurisdiction after commencement of a liquidation case under the Bankruptcy Law will be deducted from the general distribution available to these creditors on account of payments of unsecured claims under the Argentine liquidation process.

Under the Montevideo Conventions:

  • The following courts are competent to hear insolvency cases:

    • the court of the jurisdiction of the domicile of the debtor (even if it carries on business in other member states or through agencies or branches acting on behalf of the main centre of business) (single process); but the creditors in any other member state where their claims are payable can, at their sole discretion, elect to file a petition seeking the commencement of a separate insolvency proceeding in that jurisdiction (plural processes); or

    • if the debtor has several independent businesses in more than one member state, the courts of the jurisdictions of the domicile of these businesses (plural processes).

  • Precautionary measures ordered in one member state are enforceable against the assets of the debtor in any of the other member states through letters rogatory, subject to domestic law.

  • Plural processes are fully independent and governed by the law of each jurisdiction, subject to the adoption of precautionary measures and the power of the receiver of one insolvency proceeding to file motions in other proceedings.

For a single process:

  • All creditors file proofs of claims and exercise their rights under the law and before the court of the jurisdiction where the bankruptcy was adjudicated.

  • Claims payable in one member state have preference of payment on the assets of the estate located in that member state.

  • The receiver's appointment and powers are recognised by the other member states, but the enforcement of assets is governed by the law where the assets are situated.

  • Creditors secured with mortgages or pledges granted before the payments cessation can enforce their rights before the courts where the collateral is located.

For plural processes:

  • Any remaining balance after final distribution is delivered to the other courts hearing the other insolvency proceedings.

  • Assets of the debtor located in a member state where no insolvency proceeding were commenced are included in the estate of the insolvency proceedings of the court that adjudicated bankruptcy first.

  • The court of the debtor's domicile hears all personal claims.

The above is applicable to all judicial liquidations, reorganisations, payments suspension and other similar proceedings.

 
17. Do domestic courts typically attempt to exercise jurisdiction over all the assets of a company filing locally (regardless of where the assets are located) or do they limit their jurisdiction to local assets?

The Argentine courts limit their jurisdiction to the debtor's assets located in Argentina.

 
18. Do local courts enforce court orders from foreign jurisdictions that attempt to exercise jurisdiction over assets located in your jurisdiction that are owned by a company subject to foreign insolvency proceedings?

The courts will not enforce court orders from foreign jurisdictions, except in a single process under the Montevideo Conventions (see Question 16), under which the appointment and powers of the receiver are recognised by the other member states. The enforcement of claims against assets is governed by the law of the jurisdiction where the assets are situated.

However, in a Brazilian single liquidation case, the Argentine Supreme Court (court of last resort) did not recognise the appointment of a foreign representative of the receiver to have access to the Brazilian debtor's property in Argentina. The court requested the appointment of a receiver in Argentina (SA Panair do Brasil s/ liquidación (exhorto del Brasil), 1972, Fallos, vol. 283, pages 109 to 111).

 
19. Can the courts co-operate with foreign courts to co-ordinate the administration of group assets?

There are no formal guidelines regarding communication with the courts of a foreign jurisdiction to co-ordinate the administration of group assets.

 

Directors' duties

20. Does your jurisdiction encourage or discourage overlapping boards or management teams for separate members of a corporate group?

Argentine law does not encourage or discourage overlapping boards or management teams for separate members of a corporate family.

 
21. What legal consequences are there for the directors of a parent company where they are not directors of the subsidiary but do manage the subsidiary's affairs?

Directors of a parent company who are not directors of the subsidiary, but manage the affairs of the subsidiary, are not de facto or shadow directors of the subsidiary under Argentine law.

However, bankruptcy adjudication can be extended to:

  • Any person who caused the debtor to conduct activities for that person's sole benefit (or for the sole benefit of an entity of which that person is a manager or director), if that person:

    • had an active role in the debtor's bankruptcy;

    • showed wilful misconduct;

    • had conflicting interests;

    • caused an actual diversion of the debtor's assets for its own benefit; and

    • acted fraudulently against the debtor's creditors.

  • Any controlling shareholder of the debtor who unlawfully diverts the debtor's corporate interest, and subjects the debtor to a common management with the purpose of pursuing control of, or controlling the corporate group's benefit.

  • Any person whose assets and liabilities are commingled with those of the debtor in such a way that makes it impossible to identify the owner or holder of these assets and liabilities.

Directors of any entities who wilfully cause any of the above may be subject to bankruptcy adjudication extension, or subject to liability under the general fraud provisions of Argentine law and managers' liability under the General Business Companies Law No. 19,550, as amended.

Additionally, any third party can be held liable for any wrongful misconduct having the effect of reducing the debtor's assets or exaggerating the debtor's liabilities before or after bankruptcy adjudication (Reorganisations and Bankruptcy Law No. 24,522, as amended) (see Question 25).

 
22. What are the main duties and responsibilities of directors and officers to the company, shareholders and third parties? Do they change when the company becomes insolvent?

The members of the board of directors owe the company and the shareholders the duties of loyalty and diligence (General Business Companies Law No. 19,550, as amended). The duty of loyalty includes the obligation to act with the correctness of an honest person and in defence of the interests of the debtor. The duty of diligence imposes on the directors the obligation to perform their responsibilities with the diligence of a "good businessman".

The good businessman standard is applied to the particular circumstances of each activity undertaken by a director and is an objective standard. This standard requires, among other things, that directors possess certain qualifications (that is, technical knowledge, expertise and so on) and that they perform their responsibilities in accordance with these qualifications, which includes the investigation and due diligence required to adopt any decision.

Directors must:

  • Not commit any actions in fraud of the creditors' rights in relation to the creditors, tax authorities and employees.

  • Not engage in any deceit or negligent action affecting the creditors' rights.

  • Ensure that all taxes, social security and labour obligations are paid.

The directors' duties to the creditors are increased when a company becomes insolvent.

The Reorganisations and Bankruptcy Law No. 24,522, as amended provides that certain transactions performed by the insolvent company within the "suspect period" are void.

The suspect period or clawback period is the period starting from the payments cessation date and ending on the date on which the debtor files the petition for reorganisation or is adjudicated bankrupt. For this purpose, the suspect period cannot extend beyond the two years immediately preceding the date of the filing of the petition for reorganisation or the date of the adjudication of bankruptcy.

The following transactions are void if performed during the suspect period:

  • Transactions without consideration.

  • Advance payments on account of debts that are due on or after the bankruptcy adjudication date.

  • Granting of security or other preference for debts not due and not originally secured or preferred.

Other transactions detrimental to the debtor's creditors made by third parties during the suspect period with knowledge of the debtor's insolvency are voidable. The third party has the burden of proving that the transaction did not cause any detriment to the debtor's creditors.

Additionally, after a reorganisation proceeding starts, the directors' management and disposition powers are restricted. The following transactions require the prior authorisation of the court, following a hearing with the trustee and the creditors' committee:

  • Transactions relating to registered property.

  • Dispositions or leases of goodwill.

  • Issuances of secured debentures or bonds.

  • Granting of pledges.

  • Any other transaction that is not within the debtor's ordinary course of business.

The court can separate the debtor's management and appoint replacement management in any of the following cases:

  • Any of the above rules are violated.

  • Information requested by the court of the trustee is omitted or is false.

  • Any other act that is to the creditors' detriment is performed.

Following an adjudication of bankruptcy, the receiver appointed by the court takes immediate possession of all the assets of the debtor and succeeds to the debtor in the administration and disposition of the estate.

Insolvency of one of the members of a group of companies does not:

  • Change or alter the directors' duties of the other group members.

  • Trigger the obligation to file for reorganisation or bankruptcy of the other companies, except in the case of a bankruptcy extension (see Question 4).

 
23. How are competing duties addressed where directors and officers of different group company members overlap and there are conflicts of interest between the group members?

Officers and directors owe a duty of loyalty to the company, which includes the obligation to act with the correctness of an honest person and in defence of the company's interests. Officers and directors of various group company members must not adopt any decision or resolution where those companies have conflicting interests. If they do, they will be subject to liability for violation of their fiduciary duties under the General Business Companies Law No. 19,550, as amended.

 
24. What specific types of conduct are in breach of the duties and responsibilities of directors and officers?

Any express decision or omission of the directors that permit the insolvent debtor's operations to continue without adopting any measures directed to address this situation (for example, filing a petition for commencing a reorganisation proceeding) can result in liability under the general grounds for directors' liability of the General Business Companies Law No. 19,550, as amended. For example, the National Commercial Court of Appeals, Room E imposed a temporary restraining order (inhibición) on the directors of a bankrupt debtor based on the future and eventual actions that can be initiated against the debtor's directors under the Reorganisations and Bankruptcy Law No. 24,522, as amended (Bankruptcy Law).

Officers and directors are not obliged to disclose the payments cessation to creditors with claims prior to the date of payments cessation. However, officers and directors may incur liability under general laws on fraud if they enter into any transaction with third parties following the payments cessation date if they do not disclose the situation.

Before a reorganisation proceeding or a bankruptcy adjudication starts, officers and directors can be liable for fraudulent acts that are detrimental to the company's creditors. Any advance payments on debts due on or after the bankruptcy adjudication date made during the suspect period (see Question 22) are void (Bankruptcy Law). Any other transaction that is detrimental to the debtor's creditors made by third parties with knowledge of the debtor's insolvency are voidable. The third party has the burden of proving that the transaction did not cause any detriment to the debtor's creditors.

After reorganisation proceedings start, the debtor cannot make payments on pre-petition unsecured claims except under a reorganisation plan approved by the creditors and endorsed by the court. Following bankruptcy adjudication, the receiver manages the debtor's assets; the debtor is excluded from possessing and administering its assets.

Directors are also liable for:

  • Misappropriation of corporate assets.

  • Undervaluation of corporate assets in a preference or other transaction to the detriment of creditors.

  • Continuing to trade when there is little prospect of being able to pay debts when due.

  • Any fraudulent action that is considered to aggravate the situation of the debtor's assets or its insolvency situation.

 
25. What civil and criminal liability exists for directors and officers if they breach their duties and responsibilities?

Both before and after the insolvency occurs, officers and directors can be subject to imprisonment, criminal fines or restitution under the grounds discussed below.

Directors are personally and without limit liable to the company, the shareholders and third parties for (General Business Companies Law No. 19,550, as amended):

  • Mismanagement.

  • Violation of the law or the company's bye-laws.

  • Any other damages caused by the director's fraud, gross negligence or abuse of authority.

Affected parties can bring a direct action against the directors.

Additionally, from the bankruptcy adjudication, the receiver can bring actions against the managers, directors and other third parties to recover damages for wrongful conduct (Reorganisations and Bankruptcy Law No. 24,522, as amended). The period of liability for these claims extends back to one year before the actual payments cessation. The members of the board of directors who have wilfully produced, facilitated, allowed or aggravated the debtor's economic and financial situation or its insolvency will be liable for the damages arising from their actions.

Directors are liable for the payment of taxes owed by the company and unpaid during their term in office, even if the claim is made after the expiration of their term in office. In this case, the directors' unlimited, joint and several liability only arises in the case of negligent performance of their duties.

Several court cases have extended liability to directors of companies for failure to comply with labour and social security regulations, on the basis that the directors breached the law and participated in wrongful conduct in the management of the company. In these cases, directors were found to be jointly and severally liable with the company for the damages caused. This civil liability applies in the case of informal remuneration, deficient registration of employees, non-payment of social security funds and other possible infringements.

Officers and directors are also subject to criminal prosecution for the following offences:

  • Fraud against the public administration.

  • Wilfully affecting the normal operations of a business or enterprise or destroying, damaging, subtracting or hiding, or fraudulently reducing the value of any goods or products.

  • Preventing the exercise of a creditor's right on an asset or guarantee.

  • Wilfully and fraudulently simulating liabilities, transfers, expenses or losses.

  • Wilfully and fraudulently subtracting or hiding any assets of the estate.

  • Wilfully and fraudulently granting unlawful advantages or benefits to any of the debtor's creditors.

  • Causing the bankruptcy of the debtor and causing damages to the debtor's creditors through any negligent or manifestly reckless action.

  • Causing the debtor to enter into any agreement granting any creditor any special advantage for consenting to a restructuring.

  • Evading taxes in excess of ARS400,000 in a fiscal year.

  • Evading social security contributions in excess of ARS20,000 in a fiscal year.

  • Publishing, certifying or authorising any false or incomplete inventory, balance sheet, accounts of earnings and losses, or providing false material information to the shareholders' meeting in connection with the economic situation of the debtor.

  • Wilfully participating in any acts contrary to the law or the company's bye-laws.

  • Wilfully participating in the infringement of foreign exchange regulations.

  • Wilfully participating in the infringement of anti-money laundering regulations.

Directors may also be subject to criminal prosecution if the proceeds of the liquidation of the estate are not sufficient to cover the court expenses.

The term of imprisonment varies from one month to ten years depending on the crime.

The directors are subject to the payment of fines for certain violations, including breaches of:

  • Labour, hygiene and office safety laws and regulations.

  • Collective bargaining agreements.

  • Foreign exchange and anti-money laundering regulations.

Fines levied against legal entities will be applied jointly and severally to the directors and managers, among other individuals.

Officers and directors are also subject to civil restitution and/or damages in civil actions for any of the above offences.

 
26. Is potential personal civil or criminal liability a factor in officers and directors deciding if and when to put the company into a formal insolvency/reorganisation procedure?

Any action or omission of the directors that permits the insolvent debtor's operations to continue without adopting any measures directed to address the insolvency situation (for example, filing a petition for commencing a reorganisation proceeding and so on) can result in liability under the general grounds for directors' liability of the General Business Companies Law No. 19,550, as amended (see Question 24).

Additionally, any directors that wilfully produced, facilitated, allowed or aggravated the debtor's economic and financial situation or its insolvency are liable for any damages caused (Reorganisations and Bankruptcy Law No. 24,522, as amended).

 
27. Is insurance available to protect directors and officers from claims arising while operating a financially distressed company?

Insurance is available to protect officers and directors from claims that arise while operating a financially distressed company. Insurance is not widely used in industry, but premiums are realistic.

Availability of insurance is not a factor in deciding when and if to put the company into a formal insolvency/reorganisation procedure.

 
28. Can directors and officers resign from their positions if the company becomes financially distressed and what difference will this make to their potential liability?

Officers and directors can resign at any time during their term in office. However, a director's resignation must be approved by the first meeting of the debtor's shareholders held after the resignation. If the resignation affects the regular functioning of the board of directors and is wilful or unexpected, the resigning director must stay in office until their resignation is accepted by the debtor's shareholders meeting. In practice, a director may be prevented from resigning from their position to avoid personal civil or criminal liability, if their resignation can be deemed to aggravate the debtor's economic and financial situation or its insolvency. A director can be liable if their conduct during their term in office caused the insolvency of the debtor or violated the debtor's bye-laws.

The officers and directors are exposed to civil and criminal liability for all actions performed during their term in office and are not relieved from liability after leaving office. The directors' liability for wrongful conduct extends back to one year before the payments cessation.

 
29. How common is litigation against directors and officers for violation of their duties after commencement of insolvency/reorganisation proceedings? Is the litigation typically successful?

Lawsuits against officers and directors were not frequent in the past. However, over the last decade, claims against officers and directors for violation of their duties after commencement of an insolvency/reorganisation procedure have increased.

Creditors have standing to bring liability actions against directors, except for breach of fiduciary duties under the General Business Companies Law No. 19,550, as amended.

These suits are successful in an increasing number of cases.

 
30. What defences against civil and/or criminal sanctions are available to directors and officers?

Directors are liable for fraudulent mismanagement, violation of the law or the company's bye-laws, and any other damages caused by the director's fraud, gross negligence or abuse of authority. Directors are not liable for mere wrong business decisions.

All actions for fraud against directors under civil law, liability actions against directors under the Reorganisations and Bankruptcy Law No. 24,522, as amended and almost all criminal actions (except for negligent or reckless bankruptcy) require wilful misconduct.

Good faith

The General Business Companies Law No. 19,550, as amended (Companies Law) imposes a duty of loyalty on directors, which includes the obligation to meet the standard of an honest person in the performance of their duties. Good faith is one of the elements to consider when assessing a director's liability. However, good faith is not a strong defence and must be proved by the director or officer. A director may also be found liable for the breach of other duties or obligations imposed by the Companies Law.

Due diligence

The Companies Law imposes on directors a duty to perform their responsibilities with the diligence of a good businessman (see Question 22).

Due diligence and other defences may constitute elements of a defence in cases of gross negligence. However, these defences cannot be claimed to avoid liability for violations of the law or the company's bye-laws. In addition, a director that expressly manifested their opposition to a wrongful act may also be relieved from liability.

 
31. If it appears that "going concern values" will result in a higher return to creditors than a liquidation of the assets, can directors and officers be protected if they decide to continue operations to protect the values for the benefit of all creditors?

Officers and directors can be protected if they decide to continue operations as a going concern instead of liquidating assets if doing so protects the values of the debtor's assets for the benefit of all creditors. If that is not the case, the officers and directors should direct the shareholders to liquidate the company under the rules of the Reorganisations and Bankruptcy Law No. 24,522, as amended or the General Business Companies Law No. 19,550, as amended, depending on the value of the estate.

Officers and directors can only be held liable for wrongful fraudulent actions.

 
32. If a company becomes insolvent, is a director or officer of the insolvent company legally restricted from acting as a director or officer in another company, or from obtaining credit as a promoter of another company?

On bankruptcy adjudication, the directors are disqualified from acting as officers or directors in another company even if they did not commit malfeasance or mismanagement (Reorganisations and Bankruptcy Law No. 24,522, as amended (Bankruptcy Law)).

Additionally, the officers and directors of an insolvent company who were found to have had a negligent, reckless or fraudulent conduct in the insolvency are disqualified from being directors of a company for ten years following the discharge or rehabilitation of their Bankruptcy Law disqualification (General Business Companies Law No. 19,550, as amended).

 
33. If a director or officer becomes personally insolvent, is he legally restricted from continuing to act as a director or officer of his current company or another company?

Current company

Under the Business Companies Law No. 19,550, as amended, any individual adjudicated bankrupt and found to have acted in a reckless, negligent or fraudulent manner is disqualified from acting as director in any company for ten years following their discharge or rehabilitation of their disqualification under the Reorganisations and Bankruptcy Law No. 24,522, as amended (Bankruptcy Law).

When verifying the disqualification conditions of any director under the Bankruptcy Law, the other members of the board of directors or the statutory auditors can call for a shareholders' meeting to remove the disqualified director. If the shareholders' meeting does not approve the removal, any shareholder, member of the board of directors or statutory auditors can request the judicial removal of the disqualified director.

Another company

See above, Current company.

 

Online resources

Ministry of Economy and Finance (Ministerio de Economía y Finanzas)

W www.infoleg.gov.ar

Description. This is the website of the Ministry of Economy and Finance (Ministerio de Economía y Finanzas). It contains unofficial information updated by area of legislative information from the Centre of Documents and Information (Centro de Documentación e Información), which is relevant to the activities of the Ministry of Economy and Finance.

Judiciary

W www.scw.pjn.gov.ar

Description. This is the website of the Judiciary and contains information on all cases heard by the national and federal courts.



Contributor profiles

Fernando Daniel Hernández, Partner

Marval, O'Farrell & Mairal

T +54 11 4310 0100
F +54 11 4310 0200
E fh@marval.com
W www.marval.com.ar

Professional qualifications. Argentina, Lawyer, 1994

Areas of practice. Insolvency and restructuring; banking and finance.

Non-professional qualifications. Lawyer, University of Buenos Aires, Argentina, 1994; Master in Laws, Columbia University School of Law, New York, US, 2001

Recent relevant transactions

  • Advising Supercanal SA on its reorganisation (approximately US$416 million).
  • Advised Moneda Asset Management in the restructuring of Inversora Eléctrica de Buenos Aires (IEBA) (US$135 million).
  • Advised the joint lead managers and bookrunners Deutsche Bank Securities Inc., Itau BBA USA Securities Inc. and J.P. Morgan Securities LLC and local placement agents Banco Itaú Argentina SA and Industrial and Commercial Bank of China (Argentina) SA on Argentine law in the placement of US$500 million unsecured notes under Regulation S and Rule 144A of the US Securities Act of 1933 by Cablevisión SA.
  • Advised Compañía de Alimentos Fargo SA on its reorganisation (approximately US$150 million).
  • Advised Cablevisión SA on its "pre-package" reorganisation (acuerdo preventivo extrajudicial) (approximately US$800 million).

Languages. English, Spanish, Portuguese (intermediate)

Professional associations/memberships. International Insolvency Institute- NextGen Leadership Program; International Bar Association (IBA); INSOL International (Latin America Committee Member and World Editorial Board Member); American Bankruptcy Institute; Buenos Aires Public Bar Association.

Publications

  • The Court exercises discretion in confirming or rejecting a reorganization plan. Marval, O´Farrell & Mairal Insolvency & Restructuring News No. 3. Bimonthly Report. Co-authored with Martín Campbell, August 2016.

  • Effects of Commodities Prices Plummeting in the Argentine Economy. INSOL World, Third Quarter 2016 Edition, Page 14, August 2016.

  • Workers-owned cooperatives and prompt payment of labor credits under Argentine Bankruptcy Law. Marval, O´Farrell & Mairal Insolvency & Restructuring News No. 2. Bimonthly Report. Co-authored with Martín Campbell, June 2016.

  • Wilful misconduct revisited under the new Civil and Commercial Code. Marval, O´Farrell & Mairal Insolvency & Restructuring News No. 1. Bimonthly Report, April 2016.

  • Financial Institutions Restructuring in Argentina and Latin America. INSOL International Technical Series Issue No. 32, co-authored with Roberto E. Silva Jr., March 2016.

  • Roundtable: Bankruptcy in the Americas, Financier Worldwide, August, 2015.

  • Insolvency and Corporate Reorganization Report 2015, Argentine Section. International Financial Law Review (IFLR), Euromoney Institutional Investor, PLC, Page 17, 2015.

  • Group Insolvency, consolidation of debt and directors' duties and liabilities in Argentina. Global Guide 2015/2016. International Insolvency: Group insolvency and directors' duties. Thomson Reuters. www.global.practicallaw.com/internationalinsolvency-guide, co-authored with Martín Campbell, April 2015.

  • Argentina Q&A Chapter. International Insolvency: Group insolvency and directors' duties. Fourth Edition. European Lawyer Reference Series. Thomson Reuters, co-authored with Martín Campbell, April 2015.

  • Secured Credits in Insolvency Proceedings in ArgentinaInsolvency and Restructuring International. International Bar Association, April 2015.

  • Restructuring & Insolvency Argentina, Getting the Deal Through, 2015, co-authored with Martín Campbell.

  • La verificación de títulos abstractos en los procesos de insolvencia. Revista de Derecho Comercial, del Consumidor y de la Empresa, No. 5, October 2014.

  • Shareholder and other third party liability in bankruptcy cases in Argentina, Bankruptcy and Restructuring. Financier Worldwide, co-authored with Martín Campbell, March 2014.

  • Informal vs. Informal Restructurings: The Argentine Experience. Insolvency and Restructuring International. International Bar Association, September 2013, co-authored with Martín Campbell.

  • Round Table: Bankruptcy in the Americas. Bankruptcy and Restructuring. Financier Worldwide, August 2013.

  • Impact/Influence of the Government on High Profile Insolvency Cases in Latin America(Session review) INSOL WORLD. The Quarterly Journal of INSOL International, Third Quarter 2012, Conference Edition, p20, August 2012.

  • The Third Way. Global Reference Guide: Bankruptcy and Restructuring 2012. Financier Worldwide, p14, May 2012, co-authored with Ricardo Beller.

  • Debtor in Possession Financing in Argentina. INSOL WORLD. The Quarterly Journal of INSOL International, First Quarter 2012, p35, March 2012, co-authored with Martín Campbell.

  • Efectos en la Argentina de los procesos de insolvencia en los Estados Unidos. Procesos de "quiebra". Revista de Derecho Comercial, del Consumidor y de la Empresa, p11, February 2012, co-authored with Martín Campbell.

  • Cross-border insolvencies: liquidation cases in the United States with extraterritorial effects within Argentina. Insolvency and Restructuring International. International Bar Association, Vol.4 No.1, p31, April 2010, co-authored with Martín Campbell.

Martín Campbell, Of Counsel

Marval, O'Farrell & Mairal

T +54 11 4310 0100
F +54 11 4310 0200 
E mcam@marval.com
W www.marval.com.ar

Professional qualifications. Argentina, Lawyer, 1973

Areas of practice. Insolvency and restructuring; commercial; business and financial litigation; business and financial law.

Non-professional qualifications. Law, Universidad Católica Argentina (UCA), 1973

Recent transactions

  • Acting for a Swiss bank in multiple jurisdictional bankruptcy and litigation.
  • Acting for a UK bank in an inter-jurisdictional litigation.
  • Representing a US subsidiary in its bankruptcy proceeding.
  • Representing foreign creditors in restructuring proceedings taking place in Argentina.

Languages. English, Spanish

Professional associations/memberships. International Bar Association (IBA); INSOL International; Buenos Aires Public Bar Association.

Publications

  • The Court exercises discretion in confirming or rejecting a reorganization plan. Marval, O´Farrell & Mairal Insolvency & Restructuring News No. 3. Bimonthly Report. Co-authored with Fernando Hernández, August 2016.
  • Workers-owned cooperatives and prompt payment of labor credits under Argentine Bankruptcy Law. Marval, O´Farrell & Mairal Insolvency & Restructuring News No. 2. Bimonthly Report. Co-authored with Fernando Hernández, June 2016.
  • Wilful misconduct revisited under the new Civil and Commercial Code. Marval, O´Farrell & Mairal Insolvency & Restructuring News No. 1. Bimonthly Report, April 2016.
  • Group Insolvency, consolidation of debt and directors' duties and liabilities in Argentina. Global Guide 2015/2016. International Insolvency: Group insolvency and directors' duties. Thomson Reuters. www.global.practicallaw.com/internationalinsolvency-guide, co-authored with Fernando Hernández, April 2015.
  • Argentina Q&A Chapter. International Insolvency: Group insolvency and directors' duties. Fourth Edition. European Lawyer Reference Series. Thomson Reuters, co-authored with Fernando Hernández, April 2015.
  • Restructuring and Insolvency Argentina, Getting the Deal Through 2015, co-authored with Fernando Hernández.
  • Shareholder and other third party liability in bankruptcy cases in Argentina, Bankruptcy and Restructuring. Financier Worldwide, March 2014, co-authored with Fernando Hernández.
  • Informal vs. Informal Restructurings: The Argentine Experience. Insolvency and Restructuring International. International Bar Association, September 2013, co-authored with Fernando Hernández.
  • Tratado de Fideicomiso, 2013, Director: Gabriel Gotlib.
  • Debtor in Possession Financing Argentina. INSOL WORLD. The Quarterly Journal of INSOL International, First Quarter 2012, p35, March 2012, co-authored with Fernando Hernández.
  • Efectos en la Argentina de los procesos de insolvencia en Estados Unidos. Procesos de "quiebra". Revista de Derecho Comercial, del Consumidor y de la Empresa, p11, February 2012, co-authored with Fernando Hernández.

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